Woolworths to absorb IT costs as part of AU$959m restructure

Woolworths has announced a AU$959 million operating review, which includes the absorption of approximately AU$80 million relating to initiatives the supermarket giant is no longer pursuing, the impairment of IT platform assets, and the cost of restructuring consultancy services.

Five months into his tenure, the company's CEO Brad Banducci told shareholders Monday morning that the restructure was already underway, but conceded there was still a long way to go.

"We have changed our group operating model and moved more than 1,000 team members directly into our businesses to improve accountability and help us better support our store teams and services," he said.

500 jobs from head office support and distribution will be permanently lost as a result of the restructure, with Banducci saying the company will continue to review non-customer facing roles throughout Woolworths.

"While we have had to make some tough decisions and this has ramifications for many of our team, we are confident we are putting in place solid foundations for the future and early results give us confidence we are on the right track," Banducci said. "This will be a three to five year journey and we are determined to drive sustainable improvements in sales per square metre and Return on Funds Employed to deliver value for shareholders."

For the 2016 financial year, Woolworths expects to post earnings before interest and tax (EBIT) from continuing operations before significant items of between AU$2,550 million and AU$2,570 million, with Big W expected to take a AU$12 million to AU$17 million loss.

As part of the restructure, Woolworths has also spun out its online EziBuy business from Big W at a cost of AU$309 million to the organisation.

Woolworths reported for the year ending June 30, 2015 that it spent part of AU$425.9 million on its total transformation project, which included AU$199.1 million before tax on resources and professional services costs associated with business transformation programs, accelerated depreciation of assets no longer in use, and inventory provisioning due to changes in strategy.

Another AU$43 million was put towards redundancy costs, which Woolworths said at the time was primarily associated with restructuring initiatives across corporate-wide support functions, supply chain, and non-customer facing positions.

As a result, Woolworths reported that total group net profit after tax was down 12.5 percent to AU$2.15 billion. Similarly, total group EBIT dropped 12 percent to AU$3.32 billion, while total group EBIT before significant items was only down 0.7 percent to AU$3.75 billion. Sales, on the other hand, only fell 0.2 percent from the previous year to AU$60.7 billion.